AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Bermudian-based Maxseguros EPM Ltd, the captive insurer for Colombia’s largest power generation and multi utility company.

The outlook of these credit ratings is stable.

The ratings reflect Maxseguros’ balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The ratings also reflect Maxseguros’ risk-adjusted capitalisation being at the strongest level, as measured by Best’s capital adequacy ratio, and supported by a comprehensive and adequate reinsurance programme, coupled with a conservative investment policy and limited premium risk exposure.

AM Best said the ratings recognise the important role of the company within its corporate parent structure, Empresas Públicas de Medellín ESP, which is owned by the Colombian municipality of Medellín.

EPM is the largest power generation and multi utility company in Colombia.

Maxseguros is a single-parent captive insurer wholly-owned by EPM and provides reinsurance to the EPM group, covering property damage and business interruption, commercial crime, cyber-risk, directors and officers, errors and omissions and general liability exposures.

AM Best said these positive rating factors are offset partially by EPM’s substantial financial leverage and Maxseguros’ limited business and market scope, which is mitigated somewhat by Maxseguros’ stable results, favourable geographic spread of risk and its history of growing its surplus position.

Additionally, while Maxseguros depends on reinsurance, the company’s well-set underwriting and technical capabilities have allowed it to position itself as a key participant within EPM’s reinsurance panel.

The stable outlooks reflect Maxseguros’ role within EPM’s strategy, which results in financial flexibility for its balance sheet strength, as well as operating synergies that support profitable growth.

The ratings agency said this has been proven by Maxseguros’ capacity to adjust its retentions, while maintaining consistent operating performance without any adverse effect on its capitalisation.

AM Best has a favourable view of Maxseguros' overall profile within EPM’s structure; however, EPM’s credit profile and financial leverage remain key factors for future reviews of Maxseguros.

The agency said positive rating actions could take place if Maxseguros’ operating performance reflects a consistent, upward trend of profitable underwriting and investment results that improve its metrics to compare favourably with a strong assessment level.

Negative rating actions could occur if Maxseguros’ operating performance deteriorates due to increased retentions, to a point that it is no longer supportive of the ratings and causes erosion in the company’s capital base.

Negative rating actions also could arise if there is a material shift in the risk profile or role within EPM, which undermines the stability and profitability of Maxseguros, including increased activity in cash outflows to the parent.